When selling your business, you need to be aware of any tax implications to make sure you remain compliant whilst identifying where potential savings are.
When you sell your business, you will typically pay tax in the following way:
Capital Gains Tax
You will probably expect to make a profit when you sell your business, and if you do so you may be liable to pay Capital Gains Tax (CGT).
CGT is due when you make a gain on the disposal of all or part of a business asset, including land, buildings, fixtures, plant and machinery, and shares.
Currently, the Capital Gains tax-free allowance stands at £12,300, so only gains above this amount will be liable to CGT.
The current rate for basic rate taxpayers is 10 per cent on any gains related to your business sale. If you pay a higher rate of Income Tax, this will rise to 20 per cent.
How can you work out the gain?
The taxable amount, which is the gain, can be calculated by deducting the amount you paid for your business from the sale price.
However, you can also deduct costs from the gain that are associated with buying, selling, or improving your asset.
According to the Government guidelines, these include:
If you are selling shares, the way that you calculate your gain will differ.
This includes if you bought shares at different times and prices in one company, or if the shares were bought through an investment club.
The deductible fees are also slightly different, as you will not be able to reclaim costs associated with improving the asset.
Business Asset Disposal Relief
The Business Asset Disposal Relief could reduce the rate of CGT that you pay to just 10 per cent if you are a higher rate taxpayer – cutting the amount due in half!
Formerly known as Entrepreneurs’ Relief, this tax relief applies to gains of up to £1 million throughout your lifetime.
The eligibility rules for this relief differ slightly depending on whether you are a sole trader, partner or shareholder, and can be complex.
If you are selling a business, it is best to seek professional advice to ensure you are making the most of the tax reliefs available to you.
For support with selling your business, contact our team today.